c03 JWBT016-Busby September 30, 2008 14:23 Printer: TBD
CHAPTER 3
Opening the
Vault with Key
Numbers
S
ir Thomas Browne, a noted writer of the seventeenth century, once
said that he admired the secret magic of numbers. I do not know ex-
actly what Sir Thomas was referring to several centuries ago, but I
agree and I also respect and admire the power and magic of certain num-
bers. From years of market observation, I know that every financial prod-
uct has price points, or numbers, that are more important to it than others.
These points tend to be price ceilings, floors, and pivots. The interesting
fact is that the market remembers these numbers and returns to them over
and over again. Therefore, learning about key numbers and knowing how
to use them is one of the most important elements in successful trading. I
do not believe that anyone can trade to win without using key numbers.
The best way to identify key numbers is through observation. Before
trading anything—a stock, bond, future, option, or commodity—watch it
trade for a few weeks or months. If that is impractical, pull up some charts
and study them. It is a good idea to do both: observe and study. Through
observation you learn not only where a stock moved over a given period of
time but you have a sense of how it got to that point. You see the up and
down bobbles and appreciate how the stock or futures contract travels
during specific time intervals. Identify the prices where upward momen-
tum has been halted in the past. How frequently have the bears stepped in
at that particular point to push prices back down? If that price point has
been hit a number of times and the bulls have been unable to break above
it, it is a key number to remember. If the bulls gather enough momentum
to break through the price ceiling, they will likely have a nice run to the
upside. Of course, the reverse is also true. Identify the price floors. At what